The horsemeat scandal has taught firms important legal lessons

by Craig Bowers of Vertex Law

Food is a global business with complex relationships between many different parties of which the consumer – and often the retailer – is unaware.

In most cases, these supply chains are governed by contracts between the parties and a good contract is key to surviving a crisis.

For example, a contract setting out a supplier’s liability in the event of a product being defective may help lessen any financial losses suffered by the retailer (albeit possibly not the reputational damage).

Retailers are understandably concerned as to where liability will fall for defective products. Consumers are able to bring claims against the retailer although ultimate liability rests with the producer.

The legal definition of "producer", however, includes a party who presents themselves as being involved in the production process by affixing their name, trade name or other distinguishing feature.

In the case of own-label products, it means that supermarkets may be implied to be a producer and therefore liable in a way they would not have been had they simply sourced the product and sold it.

What you need to do

• Conduct a thorough fact-finding exercise when sourcing a new supplier. If you are happy with the results the next step is to negotiate a contract.
• Ensure the contract protects you in relation to regulatory action and product liability claims with each party’s obligations set out clearly, particularly regarding the specifications of the product and compliance with regulations. This should minimise the effect of any adverse circumstances resulting from the products.
• A retailer buying from a supplier should insist on warranties as to the standard or nature of the products together with an indemnity if defective products are supplied and result in a loss.
• Retailers should also insist on appropriate insurance policies being in place including public and product liability, product contamination and product recall.
• If you are a supplier, ensure the contract limits your liability should your products be defective and result in a claim from the buyer.
• If you are a retailer thinking of branding products with your name, make sure you are certain of the product’s contents and its origins.
• Keep the supply chain short and simple, carry out regular audits and ensure your contracts protect you as far as possible.

For more information, email craig.bowers@vertexlaw.co.uk or phone 01732 224000.